Libya unrest keeps oil price up

29 November 2013, News Wires – Brent futures held near $111 per barrel on Friday as prolonged unrest in Libya kept supply worries to the fore, but steady progress in settling the dispute over Iran’s nuclear programme dragged on prices.

More than 40 people were killed in an explosion at an army depot in southern Libya after locals tried to steal ammunition, the latest in a series of clashes highlighting the government’s inability to restore order. But over in Iran, United Nations inspectors were invited to visit a nuclear-related heavy water facility, marking an initial concrete step towards resolving the dispute.

Brent crude had fallen 4 cents to $110.82 per barrel by Friday morning, after swinging between $111.51 and $110.61 the session before. US oil, down 1 cent at $92.31, is set to post its third straight monthly drop. There was no settlement because of the Thanksgiving holiday in the US.

“Libya looks like it is getting worse,” Reuters quoted Mitsubishi Corporation oil risk manager Tony Nunan as saying in Tokyo. “The recent agreement with Iran resolves some issues like shipping insurance. Exports won’t jump but we could see some small increases.”

Libya’s oil exports are down to a fraction of capacity due to seizures of oilfields and ports by militias, tribesmen and civil servants demanding more political rights or higher pay.

Supply concerns just as winter demand for oil peaks will keep prices supported, but the outlook remains weak, partly because a surge in US crude production is reducing the world’s top oil consumer’s reliance on imports, Nunan said.

Hopes that more Iranian oil will come back to the market if it follows through on its commitments may also weigh on oil. Iran and six world powers clinched a deal on Sunday to curb its nuclear programme in exchange for initial sanctions relief.

Brent may slide towards $100 per barrel after the peak demand season ends, Nunan said. If prices fall to around $85, producer group Opec may start to cut output to defend prices of around $100 as many exporters need oil at that level to support their budgets.

“Saudi Arabia has been pumping very high volumes to keep the market well supplied,” Nunan said. “They can easily reduce output by 1 million barrels per day if prices start to fall too low.”

US crude oil output last week exceeded 8 million bpd for the first time since January 1989, according to the US Energy Information Administration. That helped push up crude stocks by almost 3 million barrels to 391 million barrels, their highest for November since records began in 1982.

The continuous rise in stockpiles, even though refineries ramp up runs to meet winter demand, is weighing on the US benchmark, or WTI, just as Brent remains supported. That is widening the difference between the two to nearly $20 per barrel, just off highs touched in March.

“WTI is in a world of its own,” Nunan said. “We had thought that it had reconnected to the rest of the world, but looks like it has not. There is just so much local production; it is pushing light crude imports.”

A bullish target at $112.49 per barrel has been aborted for Brent oil, while US oil is expected to drop more to $90.56 per barrel, according to Reuters technical analyst Wang Tao.